Borrowing down payment

16 Replies

Hello everyone

I'm new to BP and REI. There is loads of great information here.

So I’m just starting out my research and would like to start putting in offers March/April next yearbook the right property.

I’m currently in Vancouver, Canada and own a 1 bed condo it’s currently worth at least $30k more that what we paid for it 2 years ago.

When we bought this property we had no down payment and had $20k in a car loan. We had to borrow $20k in the form of a line of credit. We were debt free in just under 18 months.

I am thinking to go down the same route to get started with our first investment property. We are currently pre approved for a mortgage. And we would be borrowing on a line of credit $50/60k.

What are your thoughts?

Thanks.

I think its possible it just may affect your debt to income ratio. Other than that it's definitely do-able and have seen a few cases where some have done it. I would confirm with your lender if you can do that, some banks have rules against that. 

@James Smyth , well congrats on reaping some benefit of appreciation;  the tide raises all boats.

That being said, please keep in mind that leverage is a two-edged sword.  When things are going great, it magnifies your gains.  But when things go sideways, well, it compounds the losses.  

Perhaps start to investigate some other forms of financing that don't rely on your own ability to borrow /generate 100% of financing with you totally on the line.

@Julie Toh

It’s not it’s just a normal Loc. We plan to sell the condo in the next 2 years. I would like to keep the equity in the condo until then. At which point I want to use the equity to buy a home for us and a rental unit.

@James Smyth  

A heloc (a secured loc) is one of the most under-utilized financial tool that homeowners forget to tap into.  An unsecured loc carries a higher interest rate than a heloc which could hurt your debt servicing ratios. 

@James Smyth congratulations on your first deal working out well. However not all deals go smoothly or as expected.  Borrowing more to purchase investment property increases your risk, but it can also increase your return. Generally borrowing to the max if you do not also have cash reserves is a very risky move. 

@Ned Carey

I know we got lucky we bought just before the market reached its high point. I’m not expecting that type of return on any investment property this will be a long term hold and rent.

Plan on having enough cash on hand pay expenses for 6 months.

You really want to 100% finance it ? I do this a lot myself but I know and accept the risk plus it’s on cheap houses 10k or less . I imagine this is a ginormous mortgage your on the hook for ? I personally wouldn’t do that for anything over say 50k

@James Smyth

As a seasoned investor in Vancouver, BC, I'd keep the condo, refinance it with a HELOC and use the HELOC to access more funds to buy the first investment property. This method is cost-effective because the investment property would be a full tax write-off (including land tax) along with the HELOC interest.

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